1. Introduction to Finance & Accounts
BTEC Business Nationals
Unit 5 – An Introduction to Accounting

2. Definitions & Assumptions
Accounting
The collection, recording, compiling and forecasting of financial information
Financial Accounting
Management Accounting

3. Definitions & Assumptions
Financial Accounting
Gathering and publishing information of financial record.
All limited companies publish their accounts each financial year
These accounts are available at Companies’ House

5. Definitions and Assumptions
Management Accounting
Accounting statements produced for management purposes
Planning, decision making review and control

6. Overview Why businesses need accounts Major accounting documents
Users of published accounts
Raising Finance
Accounting today

7. Why do businesses need accounts?
Management Accounting
Ensures firms keep a careful check on their cash flow/working capital
Gives the opportunity to plan ahead
Identify costs/selling price
Work out break even/profit points
Measure how well staff are performing
Control expenditure

8. Why do businesses need accounts?
Financial accounts
To obtain bank loans/finance
Auditing purposes (by a range of external users)

9. Management Accounting V Financial Accounting
Focuses on the present and the future
Reports what happened in the past
Is for internal users
Is for external users
Needs to be easy to use, relevant and up to date
Needs to be reliable, accurate and consistent
Is ruled by managers’ requirements
Is ruled by accounting conventions and legal requirements
Covers departments and divisions
Covers the whole firm

10. Major Accounting Documents
Financial accounting
Balance sheet
Profit & loss account
Cash flow statement

11. Balance sheet
A snapshot of a firms assets, liabilities and sources of capital
What is the business worth?
Can it afford to expand?
Is it a safe investment?

13. Profit & Loss Account
The level of profit made in the most recent trading period
Profit = Revenue – Costs/expenses
Is the firm trading successfully?
Are the senior managers proving effective?
Is it likely to be a profitable investment?

15. Cash flow statement
This appears in the published financial accounts of public limited accounts only
Where cash has come from & where iit has been used over the past year
How easily was the firm able to find the cash to finance its recent activities?
Was the finance generated from within the business, or was outside finance needed?

17. Major Accounting Documents
Management accounting
Cash flow forecasts
Budgets
Contribution statements
Investment appraisal
Break-even charts

18. Cash flow forecasts
An estimate of what the firm’s bank account will look like in the each month of the coming year
If an overdraft is predicted, financial arrangements can be made

19. Budgets Financial plans which can be set for costs and/or revenues
Used to coordinate, motivate and control the key activities within a business in the coming year

20. Contribution statements
Set out the contribution to overheads made by each division or department of a firm
Helps make decisions about allocating resources between different parts of the business
More capital to finance expansion of the most profitable product area

21. Investment appraisal
These calculations help decide whether a prospective investment project is financially attractive
Buying new machinery
Building a new factory etc

22. Break even charts
Indicate revenues and costs, and therefore profit at all possible levels of output
They enable a break even point, where neither a profit nor a loss are made
Used in decision making:
Pricing
Cost cutting
Expansion